Page 7: Manufacturing and supply chain variances
In planning financial activities it is important to have a target or standard to achieve. Variances can be used as a way of checking the progress of strategies, corrections or changes to business activities to put the business back on track to improve performance.
Within Kraft, variance analysis involves detailed reviews that are linked to activities across the business. For example, variances between forecast sales and actual sales will affect other variances such as manufacturing costs. This is particularly true of production processes that carry high overheads.
The operations accounting and other budget planning analysts play an important role in ensuring that plans and forecasts are based upon reality. They use their experience of the business and management accounting techniques to construct annual plans. These managers work with the business teams involved with the supply chain and various marketing departments to co-ordinate their spending and investment programmes. They also then have to co-ordinate these plans.
Kraft sources its materials from 23 different locations within 10 different countries. This brings complications such as fluctuating exchange rates for foreign currencies and different levels of import duties.
Any variance between actual volume sales and predicted volume has an impact upon the supply chain. As the supply chain budget is the largest of the overhead budgets, it is essential to manage and monitor supply chain costs to ensure that the business' annual plan is not damaged.